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The Impact of the Banking Competition in Funding and Lending Markets on Lending Technology

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  • Jung-Hyun Ahn

Abstract

During the last decades, banks have expanded the use of credit scoring technology to grant loan, challenging traditional relationship lending. I investigate the relationship between banking competition and technological change in lending, and its implications for efficiency. I consider a double Bertrand competition model, where banks compete both in one funding market and in two heterogeneous loan markets, and analyze the competition between banks employing different lending technologies. I show that competition may lead to inefficiency. This happens when a bank overbids in the funding market to enjoy monopoly power in all loan markets, and one of the markets is served by less efficient technology.

Suggested Citation

  • Jung-Hyun Ahn, 2016. "The Impact of the Banking Competition in Funding and Lending Markets on Lending Technology," Revue économique, Presses de Sciences-Po, vol. 67(6), pages 1117-1139.
    • Handle: RePEc:cai:recosp:reco_pr2_0069
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    Cited by:

    1. Kirchherr, Julian & Piscicelli, Laura & Bour, Ruben & Kostense-Smit, Erica & Muller, Jennifer & Huibrechtse-Truijens, Anne & Hekkert, Marko, 2018. "Barriers to the Circular Economy: Evidence From the European Union (EU)," Ecological Economics, Elsevier, vol. 150(C), pages 264-272.
    2. Dalla, Eleni, 2023. "Asymmetries in banking conduct: A Cournot - Bertrand model," Economics Letters, Elsevier, vol. 233(C).
    3. Kris Hartley & Jasper Roosendaal & Julian Kirchherr, 2022. "Barriers to the circular economy: The case of the Dutch technical and interior textiles industries," Journal of Industrial Ecology, Yale University, vol. 26(2), pages 477-490, April.

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